December 15, 2017 at 8:24 pm #218923
I purchased an apartment in 2005 and am currently in the process of selling it. I have given my Spanish lawyer a copy of my Escritura (title deed). He has pointed out that the value quoted in the Escritura is far lower than the amount that I actually paid and as a result I am likely to be liable for capital gains tax even though the selling price is a lot lower than the price that I actually agreed and paid for the apartment. The only explanation is that the lawyer that I used at the time of purchase inserted a lower purchase price figure for some reason – unknown to me . Doing this was not discussed with or agreed by me at the time. The first time that I saw the Escritura when was I was asked to sign it at the Notary. Being naïve (in 2005) I did not check the amount inserted in the Escritura and may not have realised the figure inserted in view of my lack of Spanish at the time. Unfortunately I relied upon the lawyer recommended by the estate agent to act on my behalf. It now looks as though he didn’t as was acting on behalf of the seller and/or estate agent. Has anybody else had a similar experience? Does anybody have any ideas as to how I can proceed to hopefully eradicate my capital gains tax liability?
December 17, 2017 at 12:33 pm #218959macgd016Participant
Back in the mid 2000’s, although illegal, it was ‘customary’ to pay a significant proportion of the selling price in cash or Black Money. What was often not explained is that only the amount of the bank transfer would be written on the escritura as the sale price. Clearly this was institutionalised tax evasion and has largely been stamped out now but vendors or estate agents still ask for it on occasion. The problem as you have found is that when you sell there will be significant CGT to pay.
December 17, 2017 at 12:57 pm #218960KevinXativaParticipant
Just to add to macgdo16 reply.
The amount showing on your escritura was the White money and was normally paid by bank transfer, bankers draft etc.
The difference is the Black money and HAD to be CASH. Most notarias even kept Bank note counting machines for the purpose; but the Notary would usually leave the office whilst buyer and seller completed the Black transaction.
This question has appeared on SPI many times previously and I would normally say; with all due respect and not wishing to cause offence; it may be selective memory.
This practice helped the selle reduce capital gains tax and also helped the buyer pay less purchase tax.
December 18, 2017 at 12:29 am #218961tonyedwardsParticipant
What CGT might be payable on an apartment bought in 1976 for 7,000 euros and possible sale in 2018 for 100,000. As a non resident of Spain I understand the payment required for local taxes but this question of CGT has me confused.
Hoping your site can be of assistance and thanking you in adavance.
December 18, 2017 at 9:11 am #218964
To KevinXatura & macgd016, thank you both for taking the time to reply to my query. I take it that you have no suggestions as to how to reduce the capital gains tax liability. KevinXatura – I am 100% sure that neither my wife nor I have selective hearing. Our lawyer at the time did not discuss with us any proposal to pass over some of the purchase price in cash or to insert a reduced amount in the Escritura. I gave my lawyer power of attorney to act on my behalf and I have a copy bank statement showing 4 entries that he passed at the time of purchase which total approximately the purchase price. If cash was involved then I can only assume that one of the entries relates to cash being withdrawn. However assuming that this is the case then when I add any 3 entries together they do not total the amount shown in the Escritura. I think my lawyer was being very careful to not show clearly how this scam worked.
December 18, 2017 at 9:18 am #218965
To Tonyedwards, from the figures that you provided you made a profit of €93,000. I do not know what CGT rate is applicable in the area of Spain where your apartment is but I am looking at CGT of 19% on the profit as a non resident! It is possible to offset some of the cost of purchasing and some of the cost of selling your apartment against your CGT liability. I suggest that you use a reputable lawyer. Are you aware that 3% of the sale price (in your example €3,000) will be withheld by your purchaser and paid to the authorities to offset any tax liabilities that you have.
December 19, 2017 at 10:43 am #218990macgd016Participant
Unless you have undertaken some significant renovation I think it is unlikely that you can mitigate your CGT liability. From what you have told us the escritura from 2005 gives the sale price as registered with the tax office and that is what will be used to calculate the CGT.
As you know, if you are a none Spanish resident, the buyer will retain 3% of the sale value and pass this on to the tax man, however, I don’t know what happens after that.
I believe that CGT in the UK is declared as a self assessment, if this is the case in Spain as well what would happen if you simply stop submitting tax returns?
However, if CGT is calculated by the tax authorities would they chase you in the UK for it? Perhaps others have some experience of this and could advise better.
You do however highlight the dangers of giving a power of attorney to a third party as you give them the authority to act on your behalf and if they make mistakes or do not act in your best interests you still pay the price for their actions. All too often we see Spanish lawyers recommending that you give them power of attorney so that they can sign documents on your behalf which might seem very convenient but your experience shows how this can lead problems later on.
December 19, 2017 at 4:50 pm #218991An Ex Owner ThankfullyParticipant
Re : As you know, if you are a none Spanish resident, the buyer will retain 3% of the sale value and pass this on to the tax man, however, I don’t know what happens after that.
I’m posting this as I’m full of sympathy for your predicament and this may assist you after the sale at least. I was lucky I guess as bought off plan and thru bank guaranteed seller else it could have happened to us as we take people at their trust.
Costa Del Sol : I paid 138k Euros plus the 10% costs in 2005, sold July 2014 for 169k they witheld the 3% tax on selling. After ALL costs from beginning of ownership to end there was no profit after ALL costs were taken into account which include all your fees on selling ie realtor, lawyer etc.
If you take the advice given by the employed experts (Mark Stucklin) on this web site previously (see link below) you will lose it you wait over three months since sale, They said it had a 3 month deadline after sale to submit Form 212 & claim it back.
After reading that I thought dammit as I sold just over 3 years previously so I didn’t pursue or put in a claim, in my case after sale I thought it would run its course and the refund would follow auto some months after the sale.
Then last Sept 2017 I thought I would ask the question, I called my lawyer over there and set up a meeting while on holiday.
To my surprise he said he can still make the claim and lo and behold I received a four figure refund directly to my bank last week (3 months after he posted the claim, he had said could take 6 months)
Good luck Bonehead52 but don’t give up and don’t believe all that the so called experts say & get a couple of expert opinions, hire a good lawyer, an independent local one that comes recommended by someone who lives in your area of Spain as I did back in 2005 and never had a problem other than a bit slow at times, he’s in Fuengirola but retiring soon.
December 19, 2017 at 7:53 pm #218992KevinXativaParticipant
Thought I would follow up on your comments, and try to cast our minds back to the late nineties early noughties.
Throughout that time period Spanish property prices, like elsewhere, were rampant. I bought a property on Costa Blanca in 1996 and sold in 2003 and the price had gone up 250%; with no shortage of buyers (by contrast the property I then bought in 2003 will probably now sell for a net 30+% loss if I can find a buyer).
Also at that time non-resident owners were charged about double the rate of CGT as resident owners were charged. This meant a non-resident seller faced circa 35% tax on what were very healthy profits. This was only changed I think around 2007 when Spanish Gov was taken to European Court of Justice and told they had to treat all EU residents the same.
The Spanish attitude to tax, and other regulations has always been at odds to the British attitude. We Brits shrug our shoulders and pay what we are told to pay. Spanish (along with Greeks, Italians, etc, etc ) more often look for ways round the rules rather than just pay. Since the crisis of course some attitudes have changed, but not entirely. Its maybe for another forum to conject, but one wonders how much tax revenue has been lost in Spain/Greece/Italy etc due to the Black and White syndrome.
So when you bought your house in 2005, the attitudes were different to nowadays. Selling a house in 2005 would without question have meant the seller, particularly if non-resident, having a very large CGT liability and the seller may only have wanted to sell to a buyer that understood there had to be a large chunk of Black cash.
You don’t say what the difference in values are between your purchase price and escritura but 40% upwards was quite usual. And remember that if your purchase had been done ‘correctly’ you would have paid 10% on the black amount as purchase tax. So you have, inadvertantly, avoided paying what could have been some €000’s more in tax.
I am very surprised that your solicitor seems to have left a trail behind. You say you can show you transferred the total purchase amount to him, and you think he then took it upon himself to pay the black money. Although my knowledge is very limited, I find that amazing – not that I am doubting you, just voicing my surprise at your solicitor leaving this trail – but my own experience, and of others I know who purchased at similar time, was we had to go to Notary with our own cash.
My view is that this is not a scam. It was very common and accepted practice from which you also had a benefit along with the seller. Indeed you may have had an ongoing benefit by paying lower catastral tax often based on Escritura value. Can you do anything about. I would suggest asking your self if you really should, after all it is now 12 years since the transaction, if the Escritura value concerned you why did you not raise it earlier.
And ulimately if you do pursue it, albeit I am not at all sure how you could, but you would then end up having to pay the backdated purchase and catstral tax. So whatever your current CGT liability is, you may ultimately actually not be out of pocket.
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